Expedia 2012 Annual Report Download - page 60

•City of Anaheim, California Litigation and City of Santa Monica, California Litigation. On
November 1, 2012, the California Court of Appeals affirmed lower court decisions in each case
dismissing the city’s claims and the California Supreme Court subsequently denied review of the
appeals court’s decision.
•Kent County, Michigan Litigation. On December 4, 2012, the court granted the online travel
companies’ motion to dismiss the county’s complaint and dismissed the case.
•New York City Litigation. On November 20, 2012, the New York Court of Appeals granted the city’s
motion for leave to appeal the Appellate Division’s order holding that hotel room occupancy taxes
passed on June 29, 2009 exceeded the scope of the city’s taxing authority. The city’s appeal remains
pending.
•Branson, Missouri Litigation. On January 23, 2013, the Missouri Court of Appeals affirmed the lower
court’s ruling in favor of the online travel companies.
•Hawaii Tax Court Litigation (Transient Accommodation Taxes). On January 11, 2013, the court denied
the state’s motion to reconsider the court’s decision that Transient Accommodation Taxes are not due
on the online travel companies’ services.
For additional information on these and other legal proceedings, see Part I, Item 3, Legal Proceedings.
We have established a reserve for the potential settlement of issues related to hotel occupancy tax litigation,
consistent with applicable accounting principles and in light of all current facts and circumstances, in the amount
of $35 million as of December 31, 2012, which includes amounts expected to be paid in connection with the
developments described above, and $32 million as of December 31, 2011. In addition, as of December 31, 2011,
we also accrued $10 million related to court decisions and the potential and final settlement of issues related to
hotel occupancy and other taxes.
Certain jurisdictions may require us to pay tax assessments, including occupancy tax assessments, prior to
contesting any such assessments. This requirement is commonly referred to as “pay-to-play.” Payment of these
amounts is not an admission by the taxpayer that it believes it is subject to such taxes. During 2009, we expensed
$48 million related to monies paid in advance of litigation in occupancy tax proceedings in the city of San
Francisco. The city of San Francisco has issued additional assessments of tax, penalties and interest for the time
period from the fourth quarter of 2007 through the fourth quarter of 2011 against the travel companies, including
$22 million against Expedia, Hotels.com and Hotwire. The additional assessments, including the prepayment of
such assessments, have been contested by the online companies. During 2010, we expensed $3 million related to
monies paid in advance of litigation in occupancy tax proceedings in the city of Santa Monica; these funds were
returned to us by the city in December 2011 in exchange for a letter of credit. Hotels.com is currently under audit
by the State of Texas. There is a pay-to-play requirement to challenge an adverse audit result in court.
We do not believe that the amounts we retain as compensation are subject to the cities’ hotel occupancy tax
ordinances. If we prevail in the litigation, for which a pay-to-play payment was made, the jurisdiction collecting
the payment will be required to repay such amounts, plus interest. However, any significant pay-to-play payment
or litigation loss could negatively impact our liquidity.
Certain jurisdictions, including the states of New York, North Carolina and Minnesota, the city of New
York, and the District of Columbia, have enacted legislation seeking to tax online travel company services as part
of sales taxes for hotel occupancy. We are currently remitting taxes to the city of New York, the state of New
York, the state and local jurisdictions of South Carolina, the State of Minnesota, the District of Columbia, and the
state and local jurisdictions of Georgia.
Hawaii Tax Court Litigation (General Excise Tax). On January 11, 2013, the Hawaii tax court ruled that
online travel companies are obligated to remit past Hawaii general excise taxes with interest, which the Director
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